NU Online News Service, Aug. 12, 2004, 2:25 p.m. EDT

Despite a strong stock market last year, most pension plans are still underfunded, reports Standard & Poor’s.

Major factors in the underfunding were changes in interest rates and current accounting rules, which increased obligations of pensions in 2003, says S&P, New York.

The 362 S&P 500 companies offering defined benefit pensions were underfunded in 2003 to the tune of $165 billion in 2003. This was, however, an improvement over the $219 billion underfunding at year-end 2002.

S&P expects that moderate market gains and modest increases in interest rates this year will improve funding even more. But by the end of the year, the shortfall should stand at around $112 billion, says David Blitzer, managing director at Standard & Poor’s.

“While 401(k) plans garner much of the attention, traditional pension plans remain very important to many workers and can pose financial issues for companies facing difficult times,” continues Blitzer.

Even though pension plans as a group are not fully funded, Blitzer see no immediate danger to monthly pension benefits for the vast majority of employees.

For the current year, pension assets have so far grown about 17%, while obligations grew 9%, S&P says. It found 49 issues were overfunded and 290 underfunded.

In comparison, in 1999, 296 S&P 500 company issues were overfunded while 86 were underfunded.